Friday, July 23, 2010

China thinking about basket

Market Watch story says that top Chinese central bank official states yuan should not be benchmarked against dollar but a basket of currencies. This makes sense since the fall in the euro relative to the dollar has hurt the trade balance between China and the EU. While so much of the focus has been on the dollar-yuan rate, trade with Japan and Europe are very significant.

Deputy Gov Hu Xiaolian's comments are on the central bank's website:

Since the RMB exchange rate regime reform that started in 2005, the focus of public communications has been the RMB exchange rate regime with reference to a basket of currencies. But the mindset of focusing too much attention on RMB/USD exchange rate cannot be changed overnight due to behavioral habits and the dominant use of US dollar in accounting and statistics. This underpins the necessity for China to make more efforts to improve the exchange rate regime based on market supply and demand (mainly through the current account and especially the trade account balances) with reference to a basket of currencies.

This will not have an immediate impact on markets but it shows the intent of the Chinese.

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